The S&P 500 continued falling in the third full trading week of September 2022, closing the week down 4.65% from the previous week's close, and a full 23.0% below its 3 January 2022 peak.

This decline is consistent with how the dividend futures-based model would set stock prices if the model's basic multiplier was suddenly reset from the value of -2.5 that has applied since 16 June 2021 to be +2.0 as of 13 September 2022, assuming investors are also focusing their attention on the distant future quarter of 2023-Q2:

(Click on image to enlarge)

We're surprised by how closely the trajectory of the S&P 500 is tracking along with the model's projection of the index' trajectory associated with investors focusing their attention on 2023-Q2 because the model has also entered a period when we expect its projections are being affected by the past volatility of stock prices it uses as the base reference points for projecting the index' future potential trajectories based on how far into the future investors are looking. That's something we'll revisit next week, when we'll estimate how much of the decline in stock prices is attributable to noise and how much is signal based on how investors have changed their view of the market.

Speaking of which, we find other analysts are picking up on just how different today's market is from that of just two weeks ago. Here's how Reuters covered that development on Friday, September 23, 2022:

Across Wall Street, banks are scrambling to adjust their forecasts to account for a Federal Reserve that shows no evidence of letting up in its fight against inflation after delivering another market-bruising rate hike this week and signaling more severe monetary policy tightening ahead.

Once-reliable technical indicators are falling by the wayside. The S&P dipped below its mid-June low of 3,666 on Friday afternoon, erasing a sharp summer rebound in U.S. stocks – the first time in history the index breached a new low after erasing more than half of its losses.

A rout in bond markets added to the pressure on stocks — yields on the benchmark 10-year Treasury, which move inversely to prices, recently stood at 3.67%, their highest level since 2010.

“These are uncharted waters,” said Sam Stovall, chief investment strategist at CFRA Research. “The market right now is going through a crisis of confidence.”

Or rather, the market has entered a new regime. Here are the market-moving headlines from the week that was:

Monday, 19 September 2022

• Signs and portents for the U.S. economy:
  • Oil edges up as supply woes outweigh demand and rate hike worries
  • U.S. road travel fell 3.3% in July as gas prices remain high
  • U.S. home builder sentiment falls for ninth straight month in September
• Bigger stimulus developing in China:
  • China to accelerate projects, boost consumption to spur recovery
  • China central bank cuts 14-day reverse repo rate, steps up cash injections
• BOJ minions starting to think inflation in Japan may not be temporary:
  • 'Temporary' disappears as BOJ contemplates accelerating inflation
• ECB minions thinking about looking at data before next rate hikes:
  • Further interest rate hikes will depend on data, ECB's de Guindos says
• Wall Street ends higher after choppy trading ahead of Fed

Tuesday, 20 September 2022

• Signs and portents for the U.S. economy:
  • U.S. two-year yield at almost 15-year high before Fed meeting
  • Oil prices down, investors expect big Fed rate hike
• Bigger stimulus developing in China:
  • COVID-hit Shanghai unveils $257 billion in projects in infrastructure push
• Bigger trouble developing in the Eurozone:
  • German producer prices post surprise record jump in August
• Central bank rate hike global mania!
  • Indonesia to raise rates by another 25 bps in Sept, some call for 50 bps: Reuters poll
  • Philippines central bank to go for another 50 bps rate hike on Thursday
  • Australia's central bank says hikes could slow at some point
  • Sweden lifts interest rates by full percentage point with more to come
  • ECB's Lagarde raises prospect of rate hikes beyond neutral level
• BOJ minions facing higher-than-target inflation, Japanese government readies more stimulus:
  • Japan's inflation hits near 8-year high, stays above BOJ's target
  • Japan govt will spend $24 billion in budget reserves to cope with price hikes
    • Japan PM Kishida faces pressure to ramp up spending as approval slides
• Wall Street falls as Fed, Ford forecasts, give fright
  • Ford stock has biggest daily drop since 2011 after inflation warning

Wednesday, 21 September 2022

• Signs and portents for the U.S. economy:
  • U.S. mortgage interest rates reach 6.25%, highest level since October 2008
  • Printing the future: New factory tech reshapes the U.S. industrial economy
  • U.S. home sales drop for 7th straight month, house price growth cooling
    • U.S. rents surge, leaving behind generation of younger workers
  • Oil prices slide 1% after U.S. Fed raises interest rates
  • Gold price jumps as Fed’s Powell talks chance of recession and restrictive rates
• Fed minions hike rates as expected while increasingly expecting face recession:
  • Fed delivers big rate hike, sees another large move higher in 2022
    • Fed forecasts show fraying faith in soft landing
    • The Fed's latest rate hike: five ways Americans may feel the pain
  • Fed goes big again with latest rate hike; Powell vows to 'keep at it'
• BOJ minions want leader to continue never-ending stimulus policies, half of economists think BOJ minions won't stop yen drop:
  • BOJ's dovish deputy Amamiya top candidate as next head - Reuters poll
  • Japan unlikely to intervene to stem weak yen, half of economists say - Reuters poll
• ECB minions says more rate hikes on top of recession needed to reduce Eurozone inflation:
  • Recession alone won't subdue euro zone inflation - ECB's de Guindos
• Wall Street slumps in wake of Fed rate announcement
  • "Maybe 4-5% Inflation Is The New Normal" - Wall Street Reacts To Powell's Hawkish Surprise

Thursday, 22 September 2022

• Signs and portents for the U.S. economy:
  • U.S. mortgage rates rise to 6.29%, highest in 14 years
  • Big U.S. banks' prime rate soars to highest since 2008 financial crisis
  • Oil edges higher on Russian supply concerns in volatile trade
  • U.S. leading indicator falls for sixth consecutive month in August
• Bigger stimulus developing in China:
  • China's largest policy bank to boost infrastructure loans to local govts
• Central banks continue rate hike mania:
  • Central banks unleash 350 basis points more of rate hikes in inflation fight
  • ECB must keep raising rates despite downturn, Schnabel says
    • Euro zone inflation broadening and will continue to rise, ECB's Schnabel says
    • Analysis-Europe says goodbye to negative rates - or just 'au revoir'?
  • Indonesia central bank raises rates by 50 bps to head off inflation risks
  • Swiss National Bank exits negative rates era with 0.75% hike
  • Bank of England hikes rates by 50 bps as economy slows
  • Norway lifts rates to 2.25%, expects smaller hikes ahead
• BOJ minions refuse to quit never-ending stimulus, have to prop up yen to stop it from collapsing:
  • Bank of Japan keeps ultra-low rates, dovish policy guidance
  • Japan intervenes in FX market to stem yen falls after BOJ keeps super-low rates
    • Yen jumps as Japan intervenes in currency market for first time since 1998
• Wall Street ends down for third day as growth concerns weigh on tech

Friday, 23 September 2022

• Signs and portents for the U.S. economy:
  • U.S. business activity remains subdued in September - S&P Global survey
  • Oil plunges to eight-month low on strong dollar, recession fears
• Bigger trouble developing in the Eurozone, United Kingdom:
  • Euro zone likely entering recession as price rises hit demand -PMI
    • German economic downturn deepens in Sept, outlook grim -flash PMI
  • UK downturn deepens, raising recession risk -flash PMI
• Bigger stimulus developing in the U.K.:
  • UK's Kwarteng to scrap top rate of income tax, cut basic rate from April
• More central bank rate hikes on tap:
  • BoE needs to hike rates next week to calm markets - Deutsche Bank analyst
  • Swiss National Bank ready for further steps to combat inflation - Jordan
  • Hungary central bank seen hiking rate by 100 bps to 12.75% - Reuters poll
• Wall St tumbles as investors fret on rate hikes and recession
  • Dow poised to confirm bear market status as recession fears mount
  • 'Uncharted' sell-off in U.S. stocks has investors wondering when the pain stops

After the Fed hiked the Federal Funds Rate to a target range of 3.00-3.25%, the CME Group's FedWatch Tool projects a three-quarter point rate hike when the FOMC meets in early November (2022-Q4), followed by a half point rate hike in December (2022-Q4). In 2023, investors are expected at least a quarter point rate hike in February (2023-Q1) and another in June (2023-Q2), bringing the FFR to a target range of 4.75-5.00%. After this peak in 2023-Q2, the FedWatch tool indicates the Fed will respond to developing recessionary conditions with quarter point rate cuts projected in July (2023-Q3) and December (2023-Q4).

Meanwhile, the Atlanta Fed's GDPNow tool's projection for real GDP growth in the soon-to-end quarter of 2022-Q3 dropped again for the third consecutive week, from 0.5% to 0.3%. The Bureau of Economic Analysis will provide its first official estimate of real GDP growth in 2022-Q3 at the end of October 2022. The BEA has previously indicated the first two quarters of 2022 experienced negative real growth, but that may change as the BEA's analysts release their annual revisions.

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